Olivant, which is run by former Abbey boss Luqman Arnold, is expected to elaborate on plans that will allow shareholders to retain 80% of the company compared with the 45% Virgin has offered.

The rival bid has struggled so far to demonstrate how it would generate funds to support the re-structuring and re-financing of the bank.

Yesterday the hedge fund controlled by Jon Wood, the former star trader at UBS investment bank, increased its holding in Northern Rock to 9.1%. Wood's SRM Global fund is known to be a keen supporter of Arnold's intervention. Other shareholders, including the hedge fund RAB Capital, have argued that without a higher offer they would look favourably at the Olivant bid.

Virgin was named preferred bidder by the bank's board on Monday with the support of the government. During talks over the weekend ministers sought reassurances from Virgin and rival bidder, the US private equity house JC Flowers, that they had the firepower to mount a successful takeover. Olivant was excluded from the hectic round of meetings on the basis that its bid was the least developed.

Arnold then held "constructive" talks with the Treasury on Monday night and is understood to have given much the same reassurance as Virgin and JC Flowers.

Northern Rock has already stated that failure to push through the Virgin bid will force its board to consider rival offers.

The government commitment to lend the stricken bank taxpayer funds, which stand at £23bn, runs out in February. While the bank believes it can wait until then to seal a takeover, bidders are known to favour a much earlier start date.

The Treasury also wants a quick resolution and has put the recovery of taxpayer funds at the top of its priority list. But it is aware shareholders will need to support a bid for it to succeed. "While the Virgin consortium's proposals are in line with the principals set out by the government, we are keeping all options open with regards to other bids and the future of Northern Rock," a spokesman said.

SRM Global increased its holding from 8.5% to 9.1% to become the bank's largest shareholder in a move widely seen as an aggressive signal that it is preparing to fight the Virgin offer. Wood was unavailable for comment, but RAB Capital said it believed the Virgin offer was merely a starting point in the battle for the bank and its £100bn of mortgage assets.

A meeting of small shareholders in Newcastle on Monday gave strong backing to the Olivant bid as the potential saviour.

Shares in the bank rose 2p to 120p after sinking last week to a low of 60p.

Virgin maintains that its bid is in the best interests of all stakeholders and puts a realistic price on the bank. The deal is thought to value Northern Rock at about £225m, a fraction of the £5.2bn value seen in February before this summer's crisis .

Hard man

Jon Wood earned a reputation for ruthlessness during 17 years at SBC Warburg, now part of UBS, where he led a shareholder revolt at Lazard. The £20m-a-year trader was later in the spotlight for his high court feud with Scottish entrepreneur Sir Tom Hunter over the collapse of the Gadget Shop in 2005. Wood accused Hunter of stealing the Birthdays card chain. However the judge threw out all of Wood's claims, calling him a "very hard and calculating man".